CVC Capital-owned ConvergeOne Holdings reported an increase in third quarter revenue and EBITDA, while year-to-date cash flow from operations remained negative, said two sources familiar.

The CCC+ rated software company’s earnings and cash flow have been under pressure amid persistent high interest rates, supply chain delays and weakness at its key vendor Avaya, noted S&P analysts in a recent report. The company faces maturities in 2026 and 2027 and a revolver due 2025 that becomes current in April 2024, according to the S&P report.

To that end, an ad hoc group of ConvergeOne’s first lien lenders organized with Gibson Dunn as counsel and PJT as financial advisor, said a third and a fourth source. Meanwhile, the company has been consulting with Evercore and lawyers from the finance team at White & Case, the sources continued. White & Case acted as counsel to CVC Capital Partners in 2019 when it acquired ConvergeOne Holdings in a USD 1.8bn all-cash transaction. Bloomberg previously reported the Gibson Dunn mandate.

The company, which replaced its CEO and CFO at the beginning of the year, has been laser focused on cutting costs and achieving USD 100m in cost savings to reverse its negative free operating cash flow trend.

The borrower ended the quarter with USD 25.69m of cash on hand, the sources said. Year-to-date through 3Q23 cash flow from operations stood at negative USD 125.97m compared to negative USD 92.38m reported in the prior year, the sources added. Adjusted 3Q23 EBITDA rose 27% to USD 38.8m compared to USD 30.6m booked in 3Q22, the sources said. However, the company missed its target of USD 49m EBITDA for the quarter, the sources said. Excluding addbacks of USD 18.4m in the most recent quarter, the company reported EBITDA of USD 20.4m compared to USD 22.3m reported in 3Q22, representing an 8.5% YoY decline, the sources said. Meanwhile, revenue for the third quarter ended 30 September rose 7% YoY to USD 395.4m compared to USD 369.3m booked in the prior year period, the sources said.

This May, the cloud infrastructure and IT services company received USD 29.6m from its sponsor in the form of a promissory note due April 2026. The notes mature three months after the company’s USD 960m L+500bps first lien term loan comes due in January 2026. The company allocated the first lien loan along with a USD 275m L+ 850bps second lien term loan due 2027 in 2019 in support of its buyout by CVC Capital Partners. In 2021, ConvergeOne issued a USD 150m add-on to its covenant-lite first lien term loan with proceeds slated to fund acquisitions.

The first lien is quoted 57.1/59.2, while the second lien is quoted 20.3/28.4, according to Markit.

ConvergeOne and CVC did not respond to requests for comment.